Professional Documents
Culture Documents
Decentralized Organizations
Chapter 11
PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
11-2
Introduction
• Managers in large organizations have to
delegate some decisions to those who are
at lower levels in the organization.
• This chapter explains how responsibility
accounting systems, return on
investment (ROI), residual income,
operating performance measures,
and the balanced scorecard are used to
help control decentralized organizations.
11-3
Decentralization in Organizations
Benefits of Top management
Decentralization freed to concentrate
on strategy.
Lower-level decisions
often based on
better information. Lower level managers
can respond quickly
to customers.
Lower-level managers
gain experience in
decision-making. Decision-making
authority leads to
job satisfaction.
11-4
Decentralization in Organizations
Lower-level managers
may make decisions
without seeing the
May be a lack of “big picture.”
coordination among
autonomous
managers. Disadvantages of
Decentralization
Lower-level manager’s
objectives may not
be those of the May be difficult to
organization. spread innovative ideas
in the organization.
11-5
Responsibility accounting
• Responsibility accounting systems link
lower-level managers’ decision-making authority
with accountability for the outcomes of those
decisions.
• The term responsibility center is used for any
part of an organization whose manager has
control over and is accountable for cost, profit,
or investments.
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Cost, profit,
and investment
centers are all Responsibility
known as Center
responsibility
centers.
11-7
Cost Center
A segment whose manager has control over
costs, but not over revenues or investment
funds.
Profit Center
Revenues
A segment whose
Sales
manager has control
Interest
over both costs and
Other
revenues,
Costs
but no control over
investment funds. Mfg. costs
Commissions
Salaries
Other
11-9
Investment Center
Corporate Headquarters
A segment whose
manager has control
over costs,
revenues, and
investments in
operating assets.
Learning Objective 1
Compute return on
investment (ROI) and
show how changes in
sales, expenses, and
assets affect ROI.
11-11
Acquisition cost
Less: Accumulated depreciation
Net book value
11-13
Understanding ROI
Net operating income
ROI =
Average operating assets
Net operating income
Margin =
Sales
Sales
Turnover =
Average operating assets
ROI = $50,000 ×
$535,000
$535,000 $230,000
Criticisms of ROI
In the absence of the balanced
scorecard, management may
not know how to increase ROI.
Learning Objective 2
Residual
income
=
Net
operating -
income
(
Average
operating
assets
Minimum
required rate of
return
)
This computation differs from ROI.
ROI measures net operating income earned relative
to the investment in average operating assets.
Residual income measures net operating income
earned less the minimum required return on average
operating assets.
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Quick Check ✓
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Retail Wholesale
Operating assets $ 100,000 $ 1,000,000
Required rate of return × 20% 20%
Minimum required return $ 20,000 $ 200,000
Retail Wholesale
Actual income $ 30,000 $ 220,000
Minimum required return (20,000) (200,000)
Residual income $ 10,000 $ 20,000
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Retail Wholesale
Actual income $ 30,000 $ 220,000
Minimum required return (20,000) (200,000)
Residual income $ 10,000 $ 20,000
11-38
Learning Objective 3
Throughput Time
Throughput Time
Quick Check ✓
A TQM team at Narton Corp has recorded the
following average times for production:
Wait 3.0 days Move 0.5 days
Inspection 0.4 days Queue 9.3 days
Process 0.2 days
What is the throughput time?
a. 10.4 days.
b. 0.2 days.
c. 4.1 days.
d. 13.4 days.
11-42
Quick Check ✓
A TQM team at Narton Corp has recorded the
following average times for production:
Wait 3.0 days Move 0.5 days
Inspection 0.4 days Queue 9.3 days
Process 0.2 days
What is the throughput time?
a. 10.4 days.
b. 0.2 days.
Throughput time = Process + Inspection + Move + Queue
c. 4.1 days.= 0.2 days + 0.4 days + 0.5 days + 9.3 days
d. 13.4 days.= 10.4 days
11-43
Quick Check ✓
A TQM team at Narton Corp has recorded the
following average times for production:
Wait 3.0 days Move 0.5 days
Inspection 0.4 days Queue 9.3 days
Process 0.2 days
What is the Manufacturing Cycle Efficiency
(MCE)?
a. 50.0%.
b. 1.9%.
c. 52.0%.
d. 5.1%.
11-44
Quick Check ✓
A TQM team at Narton Corp has recorded the
following average times for production:
Wait 3.0 days Move 0.5 days
Inspection 0.4 days Queue 9.3 days
Process 0.2 days
What is the Manufacturing Cycle Efficiency
(MCE)? MCE = Value-added time ÷ Throughput time
a. 50.0%. = Process time ÷ Throughput time
b. 1.9%. = 0.2 days ÷ 10.4 days
c. 52.0%. = 1.9%
d. 5.1%.
11-45
Quick Check ✓
A TQM team at Narton Corp has recorded the
following average times for production:
Wait 3.0 days Move 0.5 days
Inspection 0.4 days Queue 9.3 days
Process 0.2 days
What is the delivery cycle time (DCT)?
a. 0.5 days.
b. 0.7 days.
c. 13.4 days.
d. 10.4 days.
11-46
Quick Check ✓
A TQM team at Narton Corp has recorded the
following average times for production:
Wait 3.0 days Move 0.5 days
Inspection 0.4 days Queue 9.3 days
Process 0.2 days
What is the delivery cycle time (DCT)?
a. 0.5 days.
b. 0.7 days. DCT = Wait time + Throughput time
c. 13.4 days. = 3.0 days + 10.4 days
d. 10.4 days. = 13.4 days
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Learning Objective 4
Understand how to
construct and use a
balanced scorecard.
11-48
Financial Customer
Performance
measures
Internal Learning
business and growth
processes
11-50
Internal
Business Number of Time to
options available install option
Processes
Customer satisfaction
with options Satisfaction
Increases
Number of Time to
options available install option
Employee skills in
installing options
11-58
Customer satisfaction
with options Satisfaction
Increases
Number of Time to
options available install option Time
Decreases
Employee skills in
installing options
11-59
Number of Time to
options available install option
Employee skills in
installing options
11-60
Chapter 11 Questions
Try The following Exercise
• Exercise 11-1
• Exercise 11-2
• Exercise 11-3
• Exercises 11-6
• Exercises 11-7
Thank You